Could Dutch-style mortgages work in the US?

(NewsNation) — For many Americans, the dream of owning a home has looked more like a nightmare in recent years. Mortgage rates are up, inventory is low, and prices are soaring.

The challenging real estate market has left some buyers wondering: Isn’t there a better way?

One alternative can be found in The Netherlands. The Dutch offer home mortgages with interest rates that go down automatically as the loan gets paid off.

“The thinking is that as the loan gets older and the ratio of the amount owed to the home’s value improves — through paying off the loan or any increase in the property’s value — the risk associated with the loan decreases,” Business Insider wrote about the unique mortgages.

Dutch-style mortgages recently arrived in the United Kingdom, but finance professor Dan Roccato says it could be a while before they cross the pond due to key differences in the U.S.

For one, there’s a strong secondary mortgage market where investors buy and sell home loans.

“Those investors may not be so keen to lower their rates in the future,” Roccato, who teaches at the University of San Deigo, said on “NewsNation Now” Monday.

Americans are also used to refinancing when rates go down, Roccato pointed out.

In the final quarter of 2023, refinance packages accounted for 36% of all mortgage originations, which means lenders may be reluctant to offer a loan product that automatically reduces rates.

There’s also the issue of mobility. The major benefit of the Dutch-style mortgage comes over time, making it less appealing to those who aren’t planning to stay in their home for an extended period.

Down the road, Roccato thinks Dutch-style mortgages could catch on with a certain niche of buyers and banks but doesn’t expect it to become the norm.

“For banks that don’t sell them in the secondary market, this could be an interesting idea,” he said.